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spk_0: good afternoon my name is mike and i will be your conference operator today at this time i would like to welcome everyone to the of these are third quarter twenty twenty earnings conference call our lives have been placed on meet prevent me back them night after the speakers remarks to be a question and answer session if you'd like to ask a question during that time please press start than the number one on your telephone keypad this car will be recorded thank you very much is deborah crawfish these books vice president of investor relations you may begin
spk_1: thank you that afternoon and welcome to face third quarter twenty twenty earning conference call joining me today to discuss our results are mark zuckerberg the am sheryl sandberg be out and they've way or before we get started i would like to take this opportunity to remind you that are remark that a will include forward looking statements actual results may differ materially from that contemplated by the forward looking statements that after they could pop at these results to differ materially and in today's press release and then our quarterly report on form ten que filed with the fcc any for looking statements that we make on the caller based on assumptions as of today and we undertake no obligation to update the statement as a result of new information or future events during the are we may prevent both gap and non gaap financial measures a reconciliation of captain and get measures it included in today's earnings press release the press release and an accompanying and your presentation are available on our website at in better got fb dot com and now i like to turn the call of or tomorrow
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spk_4: alright thanks to run for joining us today i hope you're all staying safe and doing well and we have another strong quarter people and businesses continue to rely on our services stay connected and crudup economic opportunity or especially during the tough time are now two point five billion people around the world use one or more of our up each day or more than two hundred million businesses use our free tools and are more than ten million active advertisers across or services most of these are small businesses which otherwise would have a much harder time movie on mine and region customers during this pandemic and that's something that i'm really proud of it before i cover other topics the election is of course top of mind rebel on right now so i want to start there i was just our effort but many times on previous calls but i wanted a few minutes to reiterate how far we have come since twenty six team four years ago our security teams were looking for traditional threats like hacking a bubble we ended up staying with something new coordinated interference campaigns using fake accounts or the try to spread misinformation and discord and since then we built the most advanced systems are in the world to find and or movies threat and it sure is with the numbers in the years since we've taken down more than one hundred networks including from russia iran and china and we block millions of potentially abuse to recount every day no their company has systems nearly as advanced we've also taken industry leading steps to make ads trump parents to people know who's trying to gain their support for anyone who wants to run a political or social issue out of to go through our authorization process first and between march and september are we reject did add two point two million times before they could run for trying to target the us without authorization wilsonville be our library or where you can see any add that is running on facebook or instagram a even if it's not targeted to you for political and social issue rugs but you can view paid for the ad and what are you via reached making political advertising on facebook more transparent i've been any other medium we're very focused on voter suppression are working closely with experts in the space including civil rights leaders and i'm grateful for their guide of dear our policies prohibit misrepresentations of when and how to vote and concert meant to intimidate people into not showing up the polling places like blaming the ice will be there and we recently expanded our these policies
spk_5: two
spk_4: the to include implicit misrepresentations like for example claims that you will get coven by voting in person for marched through mid october or we remove more than one hundred thirty five thousand pieces of content in the us for breaking news rules the views are role changes we've made it was four years and it helps protect the integrity of more than two hundred different elections around the world including the you do india and indonesia they've been important for stopping abuse and of next week's vote in the us the twenty twenty those who brought new challenges coven raises questions about how people will vote safely i which will be a higher levels of by mail and i'm worried that with our nation so divided and election result potentially taking days or weeks to be finalized are very the risk of civil unrest across the country i'm given this companies like ours me to go well beyond what we've done before that's all take an additional steps to help people registered to vote however they're comfortable or to clear up confusion about how to selection will work and reduce the chance of uncertainty and unrest i would take too long for me to cover everything we've done in detail or but i'd like to mention a few things at first we rounded the largest voting information campaign in american history oh we estimate that we've helped four point four million people register exceeding the goal to reach the first personally the summer oh we also estimate that in september or we helped one hundred thousand people stand up to be poll workers and south carolina star twenty percent of their total sign up to date over single weekend that we ran that recruitment drive we're also taking a number of additional precautionary to death dad's of this tuesday we blocked new political and social issue out running the week ahead of election day and after the election i were doing this because well i generally believed that the best antidote to bad beach is more speech in the final days an election they may simply not be enough time to contest you claimed if any candidate or or campaign tries to declare victory before the final results are called a wool coat put a notification of the top of people facebook and instagram feed a letting them know the results aren't finally yet they will put in informational label on candidates post the same rules were touching an informational able to content that seeks to do is determine the outcome of the election or any particular voting method and when there is a projected winter i will send people notifications letting them know and we'll show them into voting information center out we've been displaying of the top of our apps finally we been a number of important continent moderation decisions in recent weeks a including banning she went on and holocaust denial content as well as rejecting add that discouraged vaccines and to be clear this is not a shift in our underlying philosophy or strong support of free expression i instead it is a reflection of the increased risk of violence and unrest and an increased risk of harm associated with that been misinformation as we near and approved covered vaccine
spk_6: after several a customize car insurance and yourself a customize everything at michael's backpacks
spk_4: even the strongest free expression advocate don't think you should go to yell fire in a crowded theatre because they recognize that your actions or speech should not be able to put people in imminent risk of physical harm and our policy is your try to balance free expression and eighty as well and that's what we're doing no one next week will certainly be a test or facebook our systems been tested in in many elections over the last few years and election integrity is and will be an ongoing challenge and i am proud of the work that we have done here i also know that our work doesn't stop after november third as we will keep anticipating new threat evolving are approached and fighting to protect the integrity of the democratic process and the right of people to make their voices heard around the world now that else that i want to spend the rest of our time talking about our product work i were making significant investment and in hiring to develop a range of new product across the spectrum from messaging to real to our commerce efforts or longer term a r and b our platform work your facebook reality labs table share more on the scope of those investment and just a few minutes below we faced intense competition in every area of what we do i am proud of the product that we keep delivering or community
spk_0: the first on messaging a private messaging continues to one of the fastest growing forms of communication and now is roughly one hundred billion messages exchanged everyday on what type of loan but these conversations are still often fragmented across different out and people tell us that they want to build to used the after they like best term
spk_4: each everyone who they want a message that we're dressed as a we've been working on a long term infrastructure project the let people message across out and with now started rolling out an update to instagram the brings the best features from messenger and create a better messaging experience across both at an early feedback has been positive that far
spk_0: this quarter we also expanded real a new way to create and discover shore entertain videos that people have always come to instagram to express themselves and be entertained and the community has been telling us that they want a way to make and much short form video is for a while now
spk_4: the early results make me quite optimistic here i also have been impressed by the a are effect that been built by more than four hundred thousand creators on our a our platform or there's obviously a lot of competition of the space as well but i think that we're going to bring something new and higher quality that delivers value for creators i am people want to watch this content it's quarter we'll sit at major step forward and building the next computing platform or we launched quest to our most advanced virtual reality headset right in time for the holidays and it delivers a real sense of presence like you're right there with another person or in another place than and we work to make it acceptable to more people it's lighter faster has a sharper screen and a new price point of just three hundred dollars preorders have outpaced the original quest preorders a by more than five x and have surpassed our expectation we're also laying the foundation for a our glasses which will be the holy grail of delivering a sense of presence a will not taking you away from the physical world a one day you're going to sit down for dinner with your parents even if they're on the other side of the country or look up directions and take out your phone and teach yourself at the moment and we're working on the building blocks for true consumer a our glasses and in the meantime we're partnering with luxottica the maker of rebound and oakley at builder for smart glasses which will launch sometime next year deporting small businesses also continues to be a major focus for us and it's important more important now than ever cheryl is going to cover this in more detail a shortly but i want to call out a few new product that we've shipped out the face facebook shopped out that gives people a dedicated place to shop and find product or the facebook small business sweet less businesses easily manage their presence across our out and pete online events like businesses creators and educators are make money by live streaming classes talks another event in what's that we just announced ah how we're going to make it easier for people byproduct directly within a chat and integrating what up business features with face bookshops so that way when a small business at the a shop or they can now establish your will be able to establish a come a commercial present the across facebook instagram and watch app all at the same time are we continue to see how personalized advertising it's helping small businesses find customers grow their businesses and create jobs i continue to believe that we need new regulation that allows for personalized and relevant ads a while protecting people data and privacy and i worried that some proposals especially in the you and action plan by platform companies like apple that could have a meaningful negative effect on small businesses and economic recovery and twenty twenty one and beyond this is one of the policy question the really religious need to continue showing up and engaging on for the future of the internet as there are very different visions of that future held in different parts of the world and some are motivated by different values and others by strategic advantage we're going to have to stand up strongly for our vision of an internet where every individual can have access to free services and every small businesses and have access to the same kinds of tools to grow and create jobs that the become a south i'm grateful to everyone at facebook and all of our partners were working to make this vision a reality eddie i'm i'm proud of all the new products and experiences we've been able to deliver this year and as always thank you for being on this journey with us and now i will pass it over to cheryl
spk_7: thanks marking hi everyone i join mark in thanking all of you for joining us today this is a strong quarter for off and more businesses shut down line to reach customers tell their stories and tell virtually a total ad revenue for key three with twenty one point two billion which is a twenty two percent year over year increase our largest particles are ecommerce retail and ppg and we continue to see broad growth across sectors such as as as advertisers continue to optimize for measure village active like thousand website says that the digital transformation has been underway for years at the pandemic has accelerated it dramatically as mark said we now have more than two hundred million business using are free to of across our platform every month to create virtual storefront think he minute tape the customers we also now have more than ten million active advertisers across our services every month the vast majority of which are small and medium sized businesses he is businesses rely on personalized advertising to reach potential customers and growl according to the us census bureau the for the pandemic ecommerce share of us retail sales and steadily increasing by an average of one percentage point a year for the past four years this share left by four percentage points in cutillo alone as for the years of change in less than one hundred days that doesn't mean we will continue to see a sustained a calibration this may simply be future grass being pulled select but it is increasingly clear that the economic recovery will be driven by businesses finding customers and falling on line as a number of business is going to own accelerate during a pandemic we have accelerated our efforts to support them and the products side our teams have been working around the clock to build new tools that make operating online simple and efficient
spk_8: this quarter we released facebook business sleep a new interface for businesses to manage their pages and profiles across our app
spk_7: helping and save time and say up to date with customers we also expanded facebook and instagram shop instagram check out and launched the face bookshop tap their businesses can showcase their products and consumers can discover brands and by things they love and with more and more businesses using live streaming with them i can't host events in person we introduced paid online events to help and generate revenue and what's that there are now more than forty million people viewing a business catalog every month can we created a new shopping that and to make it even easier for people to discover a catalogue and find something they'd like to buy can you loss of the able to click or what have i can on a facebook shop to chat directly with business as well as improving our products we are also helping business owners learn the skills they need to thrive on line our business resource had provide training to small businesses and everything from getting set up on line to engaging with customers and it has been visited tens of millions of times since it's launch just in march as the needs of our community evolve or training changes to we launched a new partnership with coursera to change rob seekers and skills like social marketing that are becoming ever more critical and a digital economy
spk_8: we have also built on the success of our summer of support training program which reached more than seventeen million people by launching a new three months season of support to help businesses make the most for the holidays
spk_7: this includes are by black friday initiative to support black owned businesses in their communities while we continue to invest in helping businesses these are equally focus on keeping our platform safe last month we took an important step by agreeing along with you tube and twitter to a common set of definitions of hate speech and other harmful content this was done in partnership with the world federation of advertisers and a global alliance for responsible media there's more work to do but worth had it in the right direction as we continue to develop industry wide standards i want to acknowledge that despite these strong results with a significant headwinds which day will talk about more there is an important debate taking place about the way companies use data including for online advertising we welcome this debate and have been advocating for new rules for the internet and range of areas from privacy and harmful content to a election integrity and data portability while we face greater scrutiny than ever before we are also experiencing more demand from businesses for both are free and paid tools especially or personalized that products as this debate continues it is important that we don't lose sight of the hugely important role personally that play for small businesses small businesses can't afford the broad mass marketing campaigns that big brands him a good example is claimed medic a beauty brands specializing in magnetic eyelashes which started in a one bedroom apartment in los angeles a little more than a year ago
spk_8: cofounders and and kevin post photos and videos on instagram and facebook
spk_7: and use personalize adds to reach people they think might like their products including women between eighteen to fifty who are interested in beauty and cosmetics
spk_8: he also advertised people who have visited their website made possible by personalized ads technology which help them identify customer hotspot to focus on like california new york texas ohio and several southern states
spk_7: he thought and nine times increase in revenue and que three vs twenty nineteen and doubled their revenue month over month or so many businesses are struggling this year this has helped them to grow from five employees to thirty five there are countless stories like and kevin's among the over ten million advertisers on our platform
spk_8: for many small and medium sized businesses personalized advertising which uses data safely and and a privacy protected way is the secret ingredient that makes their success as possible
spk_7: these businesses have the potential to be the driving force of the economic recovery in the months and years ahead as long as they can continue to rely on the data driven tools they use day in and day out we're living in a time of deep uncertainty the next few months or quarters will continue to be precarious for so many businesses whatever happens we will remain focus on keeping people connected and supporting businesses as they make the transition online i want a close by saying how grateful i am to our partners and small all the new around the world and who are incredible teams were working hard every day to make a real and very positive difference in people's lives now here's dave
spk_4: the shirl and good afternoon everyone the let's start with our community metrics in september we estimate that approximately two point five billion people used at least one of our services on a daily basis and that approximately three point two billion people used at least one of our services on a monthly basis
spk_9: facebook daily active users reach one point eight two billion of twelve percent or one hundred ninety seven million compared to last year
spk_4: the i use represented approximately sixty six percent of the two point seven four billion monthly active users in september and the to use grew by two hundred ninety one million were twelve percent compared to last year turning to the financials or comparisons are on a year over year basis unless otherwise noted do three total revenue was twenty one point five billion dollars of twenty two percent or twenty one percent on a constant currency basis we benefited from a currency tailwind and had foreign exchange rates remain constant with two three of last year total revenue would have been a hundred and fourteen million dollars lower to three ad revenue was twenty one point two billion of twenty two percent or twenty one percent on a constant currency basis the acceleration and advertising revenue growth from two to to cute three was largely driven by strong advertiser demand resulting from the accelerated shift from offline to online commerce that we saw in connection with the pandemic we're seeing particular strength of among small and medium sized businesses we are proud of the role that our services are playing and helping people stay connected and says this is reach consumers during these challenging and uncertain times on a user geography basis europe your ad revenue growth rates improved in all regions compared to you to asia pacific in europe or strongest and grew thirty percent and twenty five percent respectively
spk_9: both regions benefited from currency tailwind us and canada grew twenty percent rest of world greets twelve percent and was impacted by foreign currency headwinds
spk_0: and que three the total number that impression served across our services increased thirty five percent and the average price per add decreased nine percent impression growth was driven by both facebook and instagram
spk_4: the decline and average price for ad was primarily driven by the ongoing next shift towards geography ivs and stories ads which monetize at lower rates although year over year pricing trends improved from the second quarter to abroad brought improvements in advertiser demand coupled with slower impression bread
spk_9: other revenue was two hundred and forty nine million down seven percent primarily due to the timing of a new product launches we transition to quest to which we began selling in the fourth quarter bernie now too expensive
spk_4: do three total expenses were thirteen point four billion dollars up twenty eight percent compared to last year in terms of the specific line items cost of revenue increased thirty three percent driven primarily by infrastructure related investments including both depreciation and operational expenditures or nd increase thirty five thirty four percent driven primarily by hiring and investments in our innovation efforts notably facebook reality labs as well as core product
spk_9: marketing and sales increased eleven percent a slower growth rate than prior quarters due to a slow down and consumer marketing and hiring
spk_4: lastly dna expenses increased thirty three percent driven primarily by higher legal related expenses we added over forty one hundred and that new hires and que three primarily the in technical functions we ended the quarter with over fifty six thousand six hundred full time employees up thirty two percent compared to last year
spk_9: we continue to be pleased with our ability to recruit on board and retain talent in this environment
spk_4: operating income was a billion dollars representing a thirty seven percent operating margin our tax rate was four percent which reflects a one time benefit belated to attack selection the capital as certain are the expenses for tax tax purposes
spk_9: net income the seven point eight billion dollars or two dollars and seventy one cents per share the one time tax benefit resulted in fps being and thirty one cents higher
spk_10: only two things are forever lost and liberty mutual customizing a cancer and single only pay for what's in heat
spk_9: capital expenditures were three point nine billion dollars given by investments and data centers servers office buildings the network infrastructure in cute three we announced that are seventeen data center will be and gallops in tennessee and will be one hundred percent supported by renewable energy
spk_4: based that recognizes the urgency of addressing climate change and we're committed to help tackle this global crisis that is why and three we set a new goal to reach net zero carbon emissions for a value chain and twenty three this is in addition to our current plans for global operations to achieve net zero carbon emissions and be one hundred percent or one hundred percent supported by renewable energy by the end and twenty twenty and beyond free cash flow with five point nine billion dollars we we one point seven billion dollars of our class a common stock completed the five point eight billion dollar investment in your platforms limited and ended the quarter with fifty five point six billion dollars in cash and marketable securities
spk_9: turning out to the outlook as expected into three be soft phase the via use in and they use in the us and canada declined slightly from q two levels which were elevated due to the impact of the pandemic and to for we expect this trend to continue and at the number of the i use in and a years in the us and canada will be flat or slightly down compare
spk_11: to keep three
spk_9: turning out to revenue
spk_4: we expect our cue four year over year ad revenue growth rate to be higher than are reported que three rate driven by continuing continued strong advertiser demand during the holiday season additionally i feel as quest to orders have been strong with should benefit of their revenue
spk_9: looking ahead to twenty twenty one we continue to face a significant amount of uncertainty we believe the pandemic has contributed to an acceleration and the shift of commerce from offline online and we experienced increasing demand for advertising as a result of this acceleration
spk_4: considering that online commerce is our largest the advert advocate for a change in this trend could serve as a headwind to our twenty twenty one ad revenue growth
spk_9: in addition we expect more significant targeting and measurement headwinds and twenty twenty one this includes headwinds from platform changes notably on a o s fourteen as well as those from the evolving regulatory landscape there is also continuing uncertainty around the viability of transatlantic data transfers and light of recent european regulatory development and like other companies in our industry beer closely monitoring the potential impact on our european operations as these developments or brat turning out to expenses we expect twenty twenty total expenses to be in the range of fifty three to fifty four billion dollars narrow from our prior range of attitude to fifty five billion dollars we anticipate that are full year twenty twenty one a total expenses will be in the range of sixty eight to seventy three billion dollars given by continued investments in prague development and technical talent as well as a return to more normal levels of stand in areas like office operations and travel
spk_4: however these are preliminary estimates as we have not yet finalized are twenty twenty one budget
spk_9: we expect twenty twenty capital expenditures to be approximately sixteen billion dollars unchanged from our prior outlook for twenty twenty one we anticipate capital expenditures be in the range of twenty one to twenty three billion dollars given by investments and data centers servers network infrastructure and office facilities our outlook include stand that was delayed from twenty twenty did to the impact of the pandemic on our construction efforts
spk_4: turning out attacks we expect our qb for effective que for twenty twenty effective tax rate to be imminent teens and are full year twenty twenty one tax rate to be in the high teens in summary we're proud of the role that our services are playing and keeping people and businesses connected through these difficult times at the same time we are continuing to invest aggressively new products and experiences that better serve our global community with that mike let's open up the call for questions
spk_0: we will now from the lungs are question and answer session last the question class star followed by the number one on your touchstone phone he's pick up your handset before asking a question to answer clarity if you are streaming today's call please need your computer speakers your first by symptoms from the line of by no one or morgan stanley
spk_12: they say oh my gosh i have to one for mark on for dave marked as it is a lot different types of gets were behavior on the platform for messaging posting videos stories shopping etc to carry it is sort of look at the way in which people are using the products now versus dead star the year pico that what's changed them most that surprised you and how that sort of impact your product priorities as you continue to make sure you're delivering value for your advertisers are this couple years and then dave i wanted ask one about the initial twenty one our back guide a mentioned sort of our indian technical talent are there any specific projects or an issue it is research look at you say these areas really need to invest merely harder and next year than you may have this year thanks
spk_4: dirt thanks her for the question i in in terms of and what behaviors we we really saw with covered ah it was it in increase in what will first of all there is an increase in almost everything across the board ah which i think was somewhat temporary and is now returning to to baseline levels of growth twitches is partially what we're saying but in terms of on some of the more permanent trends i think more people are doing and synchronous forms of connection though our voice calling and video calling i think we're seeing i continued to be to be elevated in a lot of areas ah were seeing a stronger need for community that's what a theme that we've seen for a while but i think especially with ah with covert and people feeling a little more isolated that his has grown the needed to do that online the were really going to a double down and best in in that area to help
spk_0: even more than we are today building out of the infrastructure for for communities as as a foundation going forward and people have more time with they want entertainment to were saying video arm and and gaming and things like that grow as well ah and and and not that he was driven to stand
spk_4: ah that's is more that's on top of all the commerce trend that were in i don't think we know exactly which way on this this will turn as i'm david cheryl both dad whether this is a sort of a one time for shift toward the dramatic increase in the amount of commerce the topping online versus i continued trying that we will see but but certainly we haven't seen and he declined or returns to baseline off of that i'm quite elevated levels of a bomb online commerce behavior that we see both from from consumers and ah small businesses
spk_9: a a bride i'll take that second question you guys mark
spk_4: allied in is prepared remarks are making significant investments in hiring across a wide range of new products
spk_9: the a year the i'd i'd probably talk about you know big investments that we're making in our longer term a are vr work through facebook reality last as well as continued investments in areas like messaging commerce and reels
spk_4: the only thing that i would mention on the twenty twenty one total expense guy is that we expect to have higher expenses from office operations and travel once we have seen larger parts of the workforce return to the office and we estimate that ten twenty twenty we saved to practice
spk_9: only one point five billion dollars on those expenses and you know in twenty twenty one we would be kind of working up a higher employee town which is ultimately what drives those expenses so we we did we'd we'd expect to see a snap back of some of those savings
spk_0: your next question comes from the line of eric shared him from gbs
spk_13: thanks so much or maybe i'll try to as i also up first made the following up on a brian's question the we'd be the answer it with turning back job to march with might would love to understand your philosophy around what you think the company needs to either industry or sort of salt or for the unlock all on to our augmented reality of the long term it's part of a broad base consumer an enterprise platform at be that's where the next wave of computing and you've talked about in the past what do you see a sort of the three to five year low block you're investing again think he unlocked you're looking for the business maybe cheryl good to see you will probably that number one question we get from the dusters is that all be in a bbc move as you doing on the calmer side where the people's bookshops word transformation of instagram around dodge shopping at checkout you been that way you framed your statements around the shift in commerce in real time out as we continue to discovered period how are those are sort of not forms to division that capitalized very short term que three into que or and how you think about great the ability for those are ships job a be there for advertisers and and commerce participants in twenty one of the on thanks
spk_4: there will like can take the first one terms of similar milestones for the next computing platform i think that there are there are few things that i'm really looking for so there's there's virtual reality there's augmented reality and then there's the whole can of operating system of tourists spatial computing in three d around that then and there are pieces that need to come together a to those vr ah the we are the most advanced and on the big milestone that i'm focused on here is we wanna get to ten million active unit i'm in our the our system is because we think at that point that's when it will become of the ecosystem will really be able to be self sustaining and accelerate were independent developers will be able to ah to start it'll really economically makes sense for independent developers to prioritize are the akio us platform above alternative gaming platform is because the install base will be sufficiently large that they will get good return not right now we're finding a lot of content in our style ah but we hope that that at some point the next few years we'll we'll we'll reach that ah and we have we we feel like we have line of sight of that i'm part of building our a are going to be a little bit harder time and that
spk_0: vr you know people do it and they do at home on it meant to be pretty immersive obviously you want the headset to be as ah
spk_4: small uncomfortable possible but is fundamentally it's not the type of thing that you're gonna be wearing down the street that you need to really have that a very kind of stylist her socially acceptable form factor just yet i'm whereas i i do think to have viable augmented reality consumer glasses you need to clear a number of technological the to make it to that all that technology fifth and what would be kind of a normal maybe thick rimmed consumer glasses form factor the to views are are aram get there are a number of a fundamental technological advances that still need to be made their which which is why i think that that product is still we have a few years out by ah but it's one that we're very excited about on the worked for doing on vr in a are will share some of of kind of the operating system and ecosystem around them most of the redevelopment and spatial development job and that's also shared across ah yes and the a are effect and things that were saying people use real than the camera on instagram and facebook messenger i'm and network i think is going quite well where there are hundreds of thousands of of creators and developers and people building for that but all those pieces basically need to come together for the ecosystem to work on and i've been very he impressed and excited by the progress that that then that our team that made honest i think that that the new quest you product is ah is is extraordinary i love using it ah i'm an i'm i'm really proud of the work that we've done there
spk_7: not talk about commerce in a we've been focused on making commerce more convenient more accessible to care across our app for people and businesses we always were at the top of the funnel for discovery and for connecting people think many businesses and products around the world and we saw even before the pandemic an opportunity to keep moving people down that tunnel what happened with current of virus as we just massively accelerate the map this shift massively accelerated and we really double down on shipping commerce products that we could handle the you know a nap had million small businesses who advertise but the hundreds of millions who really rely on our free tools to that they would be able to pivot on online and tell you know mark mentioned shops in his remarks we launch that's very quickly and to tail and we're seeing you know it's early but we're really pleased with the progress we've just announced expansion to what sap were building for stay stuck were building for instagram and i think what we see is that acceleration really work and it's good because we can provide these tools to and small businesses but it also accelerate our ad revenue and i'll share an example there's an indigenous brand called sisters sage they make handcraft can craft and wellness products like so like soap that they were founded by sisters and before current of buyer as they were selling at local farmers markets and multi off so that obviously just went away overnight they pivoted to say spoken shop of i were able to put themselves online and then use are targeted are targeted ads and had a had a nine times return on ad sales and as increase their sales you know by two and two over two and a half times during this and so what we see is that when we help provide the converse tools that can help the small businesses that rely on us and it can also tried our add revenue
spk_0: your next question comes from the line of just imposed on bank of america
spk_14: great thank you for american on cause you you mention that eventually you know margin have to come at a minimum of expense go gonna have to match revenue growth show or interesting the midpoint of your age thirty two percent expense growth and is that show some optimism on revenues or are you investing in some products that guy could
spk_9: could pay up with some revenues down the road and i just think it about the progress of messaging you have a deal with dt and in brazil and and opening up with other platforms is that something you're excited about over the next couple years of starting to really show some revenue should thank you
spk_4: though justin one and i take that first part of of that which is on the expense growth guidance and as there were not you know where we're not giving guidance on on on revenue growth and there's not implied guidance on revenue growth certainly you know at the midpoint you've got that right it's sort of in the low thirties on the expense growth basis that you know fairly consistent with were a headcount growth is right now and and that really reflects the you know the opportunities we see to invest with we've been successful with higher
spk_9: ring and retaining talent of the we've got a lot of priorities are given everything we have you know seen from from covidien in the shift to online with commerce with messaging and also the big investments that were making for the long term in facebook reality lab south and you know i think it's it's clear that that we would expect there to be you know up in a margin decline next year
spk_4: based on based on that guidance but we're not giving specific revenue revenue got into this time and then marked you want to cover that messaging sure i the short answer is yes i think that the goal is to build out of commerce platform around messaging with all of the tools if starting with facebook shops which we've already announced i will be coming to what's up and i messengers so any small business will be able to set up shop and have that kind of automatically establish a presence of those services to we're building out a number of tools run business messaging that we people can bomb follow up and complete transactions and get support through messaging and then payments that people can complete transactions to one of the early monetization product that is working quite well i just click to messaging add to that way if someone can get ah know a business can can run ads in facebook or instagram and in the destination for that add on can take the person to a thread ah chat threat either and messenger or what's up tend to kind of further build the relationship with the consumer or computer transaction
spk_0: and that's going quite well and i'm i'm i'm quite as about that but but overall does the big priority is building out on all these commerce tools both eyes to that small businesses and and all kinds of businesses can do the senate commerce in facebook and instagram ah but also within messaging like you say your next question comes from the line of brent know from jeffries
spk_4: at sake you are if you could maybe khokhlova about the real engagement in what you're seeing pilbara know it's early but in the observations their thank you i'm i'm happy to to jump in here yeah i'm i'm quite excited about about the progress year it's still quite early we've expanded reels and more than fifty countries we've launched number of new features are the results are are encouraging
spk_9: there's a lot there's a lot more work to do here as well die in and i don't have any specific numbers to share their and day nice to meet don't have any do any specific numbers that you would carry their
spk_15: yeah that's right i think we're encouraged by the initial results but but it's still early
spk_16: real tell boys customize the same libertinism
spk_0: to someone else at a time
spk_17: and your next question comes from the line up and their billing from goldman sachs great thank you on i had to question mark i'm on need been asked a lot about a are the are other paul but i was wondering if you could share with us how do you think about the advances you're baking on that land hoping to drive differentiation from a d commerce perspective and how much of a competitive differentiator
spk_4: can you go to be here as commerce obviously continues to accelerate online and then i just had a quick one per day the bad any update on the percentage of revenue from the top one hundred advertisers that could admit that thank you yeah i'm i think your question on augmented reality is a really good one because it hits on the fact that we mostly talk about it as a long term new kind of platform but in the next couple of years i also think that there will be opportunities to build bill be kind of features into our mobile app in an increasing way to to to can help people express themselves like they're doing and real than stories i'm in our cameras we have a as you probably know rolled out a number of augmented reality commerce tools and ad formats brits are the type of thing is like for cosmetics people can try on lipstick or or or sunglasses see what they would look like on them in a we we we think we can get to the plug type to the place where and from more kind of items that you might buy to put in your house
spk_18: we'll be able to ah her for a lot more of that stuff be able to visualize were would look like in your living room armed and just breathe through your camera and and augmented reality to all try on clothes different things like out over time
spk_4: though there is a lot of of this work that i think will help out by building new innovative experiences in our mobile app in all of that is also contributing to building up on the longer term development platform around three d and spatial computing that will be very foundational to all of the vr in a our work longer term as well
spk_0: and heather day we don't cover update on the top one hundred advertisers to his deck that i would say that you know we conceded to see you know strong growth from are small and medium sized advertisers in the quarter i'm at your continued strength with our direct response to advertisers so i'm here really print please
spk_19: with that the broad base of van broadbased based of advertises that we saw in the quarter and and helping those advertisers connect with basement and with with consumers you're in this in this challenging climate south i'm really pleased with what we're seeing on that front
spk_0: your next question comes from the line hotdog immune from tv martin
spk_13: bates reply to questions on one from mark and then one for shell day
spk_4: mark you touched on interoperability briefly ambers will be be talk about your rollout effort but are now we should they are the key benefit than and milestone there and then i'm cheryl are they would you still expect idea if they'd at the same degree of impact on your business as you did three months ago whenever it is actually rolled out or is it possible that the delay benefit do with more time to work around and leverage other data that and and therefore minimize the impact thanks i can speak about interop ah been in it's it's been a long term infrastructure project we've been working on to make it that people can send messages between the apps ah we started rolling out interoperability between messenger on an instagram messaging and that live in a lot countries around the world now including in the us on the initial feedback i think been quite positive as brought a number of features
spk_20: or to instagram that we previously had only had and in messenger i'm in the the beach the big benefit the way that i think about this is that in a lot of countries around the world
spk_4: there is a primary a messaging app that most people used in the us that that it doesn't quite exist in the same way on i message is certainly the leading messaging app on but the of course people on android can't use it and i'm and are still a prepaid quite large portion of the population is on android of that messaging experience of the us is very frog limited compared to out what you experience you were in india or china or brazil or a lot countries and and in europe and which i think just makes it confusing and make it means that people after have all these different apps to reach people that are not sure where to reach people it makes a little bit harder to build up a business the ecosystem are become businesses have to work across all these different places so our goal is to make it the that people could just choose the one of our ah ah that they prefer using the most for messaging and can reach all the people who they want to reach across all of our different off from whichever of of the after is their favorite and and of course they can continue using multiple they want i'm you know this is given a choice that people have by but i think it should simplify things and make it to that these the
spk_9: read different networks that that we've had between messenger instagram and and what's up in start to function a little bit more like i'm like one i'm connected is a interoperable system i'm in that division there's there's more worked out to happen here we present want to bring in what up to that interoperability as well and they're more features you want to add even today the messenger instagram interoperability by our but it's good to see the starting to roll out after i what has been a i have pretty large engineering and infrastructure project and i'm you know idea pay and i guess i'll at fourteen more broadly i'm you know obviously apple i did delay the implementation of certain elements of their and i was fourteen launches it relates to add some of the privacy initiative so i think that's and that impact won't be felt in queue for on where you know prior we we would expect have seen that a few for so i think it's it's mainly a delay in the impact rather than it's a a change in the impact so we're going experience that and twenty twenty one you know specifically as it relates that you know idea fake arm
spk_0: you know it's going to have a disproportionate impact on you know app installs and and us our audience network and done so that's obviously at a big challenge for you know app developers who are leno looking to grow their business and name and you know in what is a difficult time so you know we think that challenge will remain and when that implementation ah happens but ah yeah in terms also have your whether there's you know work that we can do
spk_21: and to mitigate that impact and businesses reach out to us all the time on you know how they can continue to run effective ads in the face of these platform changes and you know we're looking at various options but our vet best view is that there is a you know they're they're gonna be significant headwinds next year as a result them of these changes you know specifically on i was fourteen
spk_0: your next question comes from the line of michael nathan some from bob and the than some
spk_4: thanks i won for martin one for charlotte ah mark on take you back to section two thirty in yesterday for a second the simply your the most comfortable to see out about making changes to the law and wonder what are the change that you your proposed to that packed that proposal in june resemble where we need to go away waiting the cost of these things you would be for to school and then for cheryl retirement acceleration of more business in handy are embracing facebook through this crisis key talk a bit about what verticals maybe had been lagging your within their moves a pay an instagram and maybe how this crisis has accelerated certain verticals to or to spend more than they had before dog i can talk about that the first one so at this point we have the benefit of seeing how different countries have adopted different types of regulation and getting to understand how that either makes ah the problem is more effective for for dealing with them or in some cases makes it harder and and actually makes die chris worst result though the approaches that that i think seem to have worked best you know by looking at what your france and and a few other countries have done his arm is is basically ah one which focuses on creating a transparent process where ah companies have to report how they're doing moderation i'm reporting on how much harmful content of different categories is dumb is is is visible the portion of the content on a service i'm and what percent of it our content moderation systems can get you are before people need to report it up and i think a system like that i that basically requires companies to meet certain threshold door or show improvement it's basically aligns with don't have the right way i'm to encourage companies to to minimize the amount of that harmful content that people are staying on it will be there are plenty of examples where there are other regulatory regime that i think point towards ah that are counterproductive right or are basically require companies to do things that i'm that aren't quite getting it through the the most important aspect of the problem
spk_22: the it was one example i did you know and some and it in some countries there are rules and you have to get a certain content within a short period of time and i'm and and that i think it is good on it's face but i think the reality is that a piece of content that's going to am
spk_7: not be seen by many people maybe it's not as urgent to deal with his is one that is you can be problematic but is going to be see my lot of people you really want to get that sooner treating all content equally compared to just looking at the prevalence of how much bad stuff people are saying on of you can be less effective overall south it's hard to to speak to the cost to facebook or or other company specifically because this is pretty nuanced stuff and the lot of that will depend on specific language your details of how the slams ah but you can get this point there are enough examples and country is that i you can you can come to get a sensitive what helps create a more healthy coast dumb and what doesn't no on verticals are great is very broad base and it especially important for small and medium sized businesses you know these businesses have faced huge challenges in a pandemic and they've needed him a conventional often percent first time to the frequently provide to gap and sounds online on my presence novel presence have been more and more important and person i that are more and more important you know the use of paid out which we can do in a very privacy protection way to let them by the audience as they want are increasingly employing in a big companies can afford to buy broad that campaign said had countries are holds you aggregates more companies can't say survival and the economic growth and the increasing ability to stay afloat and higher has really been driven across the board by smb is now some vertical have you know experience more of the certainly ecommerce and leaving example there are a lot of other businesses that have asked ah
spk_0: lend themselves to online education is growing nicely retail there are others like travel and auto that were have lagged during this but are starting to rebound as well i also well we're talking about particles are wanna take the opportunity to say that i think there is a bit of a misunderstanding
spk_23: about the size of political ads on our services in two three combined political ads and government spending altogether was still low single digit percentages of ad revenue in the us and globally and not a top ten vertical and the us or globally as well your next question comes from the line of mark my you from rbc
spk_7: question for sure sure your talked about the acceleration and ad revenue associated with i'd just build out of social climbers to do a double click on that a little bit more and explain that it is it just that this as the inventory becomes more transactional it's more valuable in there for marketers are willing to bit more for just explain that that link between the growth in commerce actively on the network and the acceleration of expelled
spk_8: recently that revenue thank you
spk_7: i think the acceleration i was talking about is really and acceleration to businesses moving on line there were just a lot of businesses that before the pandemic were since you know consistently offline businesses they sold locally they advertise locally you walked into their store and bought and what the panda and this was already changing right businesses were
spk_1: already going online but we just had seen in massive acceleration in businesses doing things online whether it's finding customers letting you know they're open selling curbside pick up you know when people can't walk into stores all over the world they had to reach customers a different way
spk_10: that acceleration has really powered our business that's why there are two hundred million small businesses or businesses using our free tools because a lot of these businesses had to go online for the very first time that's why we have ten million advertisers because once you have an online presence once are doing things to reach customers online and eve
spk_0: delivering products not and percent you see that you see that acceleration and so it is that overall acceleration on some online commerce some of our ecommerce tools that's really am i think increase the number of small businesses all over the world that are using our free tools and our advertising with us
spk_24: operator were going to take one last question only two sons are forever loves and liberty need for customizing a cancer and single with his which in heat your last question comes from the line of use of squali from truth securities great think very much or one question for marco one for the if mark on them online game in his his his of opportunities and immersion opportunity for you
spk_4: i was wondering how you get how you see your position today just as as you compete with very entrance players like which and you to what you need to do to win longer term and is vr and a or and the work you're doing potentially a competitive advantage over time and then they've done given the amount of cash yeah you got have on the balance sheet of just added five point nine billion dollars in free cash flow this past quarter with a change in the administration and prospects for may be higher capital gains and dividends be within taxes change your way on how to manage your how you guys are managing your capital allocation then returned short term thank you i can talk about gaming or so this is an area that that i'm very excited about think gets a big growth area and one that i that i enjoy lot personally am it's
spk_25: the what we're doing a number of things here
spk_4: and the knife and you're right that the longer term virtual and augmented reality projects a do help out here both is in there that the near term in the long term it's also just very exciting area of of gaming but most people are using gaming your services through the face for gaming initiative that we have ah
spk_0: your people streamed james
spk_4: he was using your life tools people wanna be able to build community i think our our features and i were arms have social focus is a company mean that with your better able to serve a game streamers you want to build a community across our service added that part is going quite well it is is is growing quickly in we just launched our our our cloud initiative which which plugged into are both at the fish gaming work that were doing and ah and the the ads work we do on helping our game companies get new customers that it it's it's it's not nada a completely different approach it it it sort of plugs into that the court things that we do
spk_9: i'm so you're you're basically saying gaming combine with video
spk_4: and the communities work ah that were doing and in order to just can grow all of those that once i'm over the longer term i think the vr peace will will want to say i'm coming to that as well in the cloud gaming stuff that we're doing or course be useful for for vr as well and we're building a big community around that on off the was but there's this i do
spk_9: you think will be a very exciting or growth opportunity and ability to to offer lot of innovation is innovation over the coming years
spk_1: yeah thanks you said so on our capital allocation you know our focus is in investing and growth and and conceding to make sure that we make investments to drive this long term president business that includes investing in our core product as well as investing in some of our longer term initiatives like this big reality labs
spk_0: you know this past quarter of he made an important strategic investment in jail platform so that wasn't a significant outlay of capital and you know we continue to have an active share repurchase program authorized by the board
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